Medicare Advantage Insurers Will See Higher Payments as CMS Backs Off a Key Payment Update
Published: April 8, 2026
The Trump administration this week backed off a key element of its Medicare Advantage rate proposal, resulting in billions of dollars in additional payments to private insurers. On April 6, the Centers for Medicare & Medicaid Services (CMS) finalized Medicare Advantage payment rates for 2027, estimating that average per-enrollee payments will increase by nearly 5%—about double the increase in the initial proposal. This reflects technical updates, policy changes, and continued growth in Medicare Advantage risk scores, and translates to roughly $26 billion in additional payments for 2027 (about half of that increase, or $13 billion, reflects the impact of risk scores trending upward).
The higher final payment rates are largely driven by CMS’s decision to delay changes to the risk adjustment model. The risk adjustment model increases Medicare payments to private plans for enrollees who are expected to cost more (based mainly on diagnosed health conditions) and decreases payments for enrollees expected to cost less. The initial proposal would have updated the model by incorporating more recent data to better reflect current treatment patterns and costs. CMS explained the decision to delay the update will give Medicare Advantage insurers more time to adjust to the new risk adjustment model that was phased in between 2024 and 2026. Some insurers had attributed decisions to scale back their Medicare Advantage offerings in recent years to those risk model changes. Despite this, the Medicare Advantage market remains robust, covering more than half of beneficiaries, with broad plan choices and wide availability of supplemental benefits.
Industry groups opposed the update initially proposed by CMS, warning of higher costs, reduced benefits, and fewer plan options, and mounted a significant lobbying effort for higher payment rates, including a campaign that sent thousands of identical letters to CMS raising concerns about the likely consequences of the proposed rates for enrollees.
In the Rate Announcement, CMS also finalized a policy to exclude diagnoses identified through chart reviews that are not linked to a provider encounter. Insurers use chart reviews to add diagnoses from medical records that are not otherwise submitted by providers, increasing payments to private plans. The policy aligns with CMS Administrator Dr. Mehmet Oz’s concerns about coding conditions not tied to care and reflects elements of the bipartisan No UPCODE Act. CMS narrowed the policy by exempting enrollees who switch insurers, but this policy change is still expected to reduce average payments by 1.5%.
In recent years, Medicare Advantage payments have come under increased scrutiny. The Medicare Payment Advisory Commission estimates payments to plans are 14% ($76 billion) higher than spending for similar beneficiaries in traditional Medicare. While this gap has narrowed due to the recent risk adjustment model changes, higher payments are expected to persist without further revisions.
CMS has stated the importance of payment accuracy. Given the prominent role of Medicare Advantage, the implications of getting the payment system right loom large as it affects Medicare spending and the solvency of the Medicare Trust Fund, premiums paid by beneficiaries, benefits, and profitability for insurers participating in this market.